Texas’ ‘red-hot’ economy likely to cool in the second half, says Dallas Fed economist

For Immediate Release: August 10, 2018

DALLAS—Texas has added jobs at a “blistering” pace through the first six months of 2018, but there may be a slight cooldown ahead, according to the Federal Reserve Bank of Dallas’ latest Texas Economic Update.

“After red-hot gains in the first of the year, the Texas economy will likely cool in the second half due to a historically tight labor market and a slowing in export growth,” said Dallas Fed Senior Business Economist Laila Assanie in a video accompanying the release. “Additionally, Houston’s growth—which makes up 25 percent of the state’s employment—will likely cool in the second half as Hurricane Harvey-induced activity dissipates. Despite the cooling, Texas will still see solid and above-trend job growth in the second half.”

Texas added jobs “at a blistering 3.6 percent annualized rate in the first half,” Assanie said, with gains broad-based across industries and metro areas. In fact, the state ranked No. 1 for job growth in the country, up from 9th place in 2017, she said.

The state unemployment rate fell in June to 4 percent—near its all-time low of 3.9 percent in November 2017. Even broader measures of unemployment are below their prerecession averages, Assanie said, indicating that slack in the labor market has been largely absorbed. That is putting pressure on employers to raise wages.

“The Texas labor market remains extremely tight with unemployment near historic lows, leading to mounting wage pressures,” Assanie said. “Anecdotal reports of labor shortages are rife across industries and skill sets.”

Texas’ tight labor market and slowing export growth are among factors that may lead to slower growth in the second half, according to Assanie.

“A historically tight labor market, uncertainty surrounding U.S. trade policy, including NAFTA, and an unexpected downturn in oil prices remain key downside risks to the outlook,” Assanie said.

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Media contact:
Jennifer Chamberlain
Federal Reserve Bank of Dallas
Phone: (214) 922-6748
E-mail: jennifer.chamberlain@dal.frb.org